A new study has shown that poverty and inequality in Sub-Saharan Africa can be reduced by international remittances.
Eric Akobeng, who has worked as a development policy worker at the Ghana Ministry of Finance and Economic Planning for 13 years, said: “Remittance payments are great ways of sharing wealth between Sub-Saharan Africa countries and other nations. Sending money home from abroad is a hidden force for breaking the cycle of poverty and inequality in Sub-Saharan Africa.”
The results suggest that a 10% increase in remittances as share of gross domestic product (GDP) will lead to a 1.2% decline in the number of people living on less than US$1.25 per day, 2.4% decline in the depth of poverty, 3.1% decline in the number of people living in extreme poverty and 1.5% decline in inequality.
In particular, it was shown that a 10% improvement in the link between remittances and finance can lead to a 0.6% decline in the number of people living on less than US$1.25 per day, 1.1% decline in the depth of poverty, 1.4% decline in the number of people living in extreme poverty and 0.5% decline in inequality.
Eric added: “If remittances are received through banks or other financial intermediaries, there is a high probability that some part of the remittances income will be saved. An efficient financial system will provide the fertile grounds to facilitate the receipt and utilisation of remittances, leading to higher output and welfare improvement.”
The dataset used for this study came from 41 Sub-Saharan Africa countries between 1981 and 2010.
When asked about future policy implications, Eric said: “In the future there is a need for Sub-Saharan African policy-makers not to depend solely on foreign aid and foreign direct investment but to look at remittance payment as a poverty-reducing and income-equalizing tool in designing poverty-reduction strategies.”
Dr Barbara Roberts, Eric’s primary supervisor, said: “Eric identified remittances as an important but often overlooked source of external finance for developing countries. He then quantified the impact of remittance flows on poverty reduction for Sub-Saharan Africa countries and articulated policy implications arising from his results. For his empirical investigation he chose Sub-Saharan Africa as the world’s poorest countries are located in this region.”
The research was funded by the Ghana Education Trust Fund and a Graduate Teaching Assistant Studentship from the University of Leicester.